UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-28108
Suburban Lodges of America, Inc.
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(Exact Name of registrant as specified in its charter)
Georgia 58-1781184
- ------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1000 Parkwood Circle
Suite 850
Atlanta, Georgia 30339
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(Address of principal executive office, including zip code)
770-951-9511
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES / X / NO / /
Number of shares of Common Stock, $.01 par value, outstanding as of
September 30, 1997:
15,429,227
Suburban Lodges of America, Inc.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1997
and March 31, 1998 (unaudited) 3
Consolidated Statements of Operations for the three
month periods ended March 31, 1997 and March 31, 1998
(unaudited) 4
Statements of Cash Flows for the three month periods
ended March 31, 1997 and March 31, 1998 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7-8
Results of Operations
PART II. OTHER INFORMATION AND SIGNATURES
Signatures 9
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31,
1997 1998
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 62,650,048 $ 40,571,945
Restricted cash 11,000,000 21,000,000
Accounts receivable, trade 193,322 314,678
Prepaid and other assets 3,257,843 3,799,730
Prepaid income taxes 835,254
Current deferred tax asset 218,053 218,053
-------------- --------------
Total current 78,154,160 65,904,406
-------------- --------------
OTHER NONCURRENT ASSETS 3,554,748 5,053,033
INVESTMENT IN FACILITIES-at cost:
Land 19,894,011 23,071,178
Buildings and improvements 108,012,604 123,853,563
Equipment 5,857,306 6,663,544
Furniture and fixtures 6,272,884 7,284,184
Construction in progress 26,491,293 28,601,209
-------------- --------------
166,528,098 189,473,678
Less accumulated deprecieation (5,382,957) (6,465,304)
-------------- --------------
Net investment in facilities 161,145,141 183,008,374
-------------- ---------------
$ 242,854,049 $ 253,965,813
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 1,613,900 $ 502,522
Construction accounts payable 4,610,971 4,186,579
Accrued expenses and other liabilities 1,741,929 2,023,759
Notes payable, bank 10,000,000
Income taxes payable 185,892
Other current liabilities 649,955 573,760
-------------- --------------
Total current 8,616,755 17,472,512
LONG-TERM DEBT 25,000,000 25,000,000
NONCURRENT DEFERRED TAX LIABILITIES 99,133 99,133
OTHER NONCURRENT LIABILITIES 85,936 85,936
-------------- --------------
Total liabilities 33,801,824 42,657,581
SHAREHOLDERS' EQUITY:
Common Stock 154,292 154,292
Additional paid-in capital 200,159,769 200,159,769
Retained earnings 8,738,164 10,994,171
-------------- --------------
Total capital 209,052,255 211,308,232
-------------- --------------
$ 242,854,049 $ 253,965,813
============== ==============
See accompanying notes to financial statements
Page 3
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31, 1997 March 31, 1998
-------------- --------------
REVENUE:
Room revenue $3,449,567 $8,233,588
Other hotel revenue 237,927 428,594
Franchise and other revenue 235,170 383,287
----------- -----------
Total revenue 3,922,664 9,045,469
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COSTS AND EXPENSES:
Hotel operating expenses 1,867,721 4,568,877
Corporate operating expenses 400,959 757,584
Depreciation and amortization 448,627 1,082,994
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Total costs and expenses 2,717,307 6,409,455
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OPERATING INCOME 1,205,357 2,636,014
INTEREST INCOME 769,972 834,969
INTEREST EXPENSE (18,620) (62,397)
----------- ----------
1,956,709 3,408,586
INCOME TAX EXPENSE (699,528) (1,153,570)
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NET INCOME $1,257,181 2,255,016
=========== ==========
Earnings per common share-basic and diluted $ 0.11 $ 0.15
=========== ==========
Weighted average shares
outstanding 11,733,061 15,429,227
=========== ==========
See accompanying notes to financial statements
Page 4
SUBURBAN LODGES OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
1997 1998
------------ -----------
OPERATING ACTIVITIES:
Net income $ 1,257,181 2,255,016
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 466,000 1,082,994
Changes in assets and liabilities:
Trade receivables, net (11,125) (121,356)
Prepaid expenses and other assets (214,726) (542,247)
Advances to affiliates 24,000 --
Current deferred tax asset (10,000) --
Other noncurrent assets (145,500) (1,498,285)
Accounts payable, trade (70,806) (1,111,378)
Accrued expenses 409,113 281,830
Noncurrent deferred tax liability 64,003
Other current liabilities (21,564) (76,195)
Income taxes payable 398,919 1,021,146
------------ ----------
Net cash provided by operating activities 2,145,495 1,291,525
------------ ----------
INVESTING ACTIVITIES:
Construction accounts payable (1,746,056) (424,392)
Capital expenditures (10,278,817) (22,945,236)
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Net cash used in investing activities (12,024,873) (23,369,628)
------------ ----------
FINANCING ACTIVITIES:
Repayment of debt from acquisition properties (12,470,420)
Offering costs (28,184)
Restricted cash (10,000,000)
Notes payable, bank 10,000,000
------------ ----------
Net cash provided by
financing activities (12,498,604) --
------------ ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (22,377,982) (22,078,103)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 78,340,278 62,650,048
------------ ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 55,962,296 $ 40,571,945
============ ============
See accompanying notes to financial statements
Page 5
Suburban Lodges of America, Inc.
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission for reporting on Form 10-Q. Accordingly,
certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been
omitted. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, which are necessary
for a fair presentation of financial position and results of
operations have been made. These interim financial statements
should be read in conjunction with the consolidated historical
financial statements and notes thereto, presented in the
Company's Annual Report on Form 10-K for the year ended December
31, 1997.
All significant inter company balances and transactions have been
eliminated.
2. EARNINGS PER SHARE
Earnings per common share for the three month periods ended
March 31, 1998 and 1997 are computed by dividing net income by
the weighted average shares outstanding for the period.
3. CONTINGENCY
The Company is a defendant in certain shareholder litigation
related to the Company's stock offering on October 14, 1997.
Management believes the claims are without merit and intends
to vigorously defend such litigation. It is the opinion of
management that the outcome of such litigation will not have
a material effect on the financial position, results of
operations, or cash flows of the Company; however, the
outcome of such litigation cannot presently be determined.
4. RELATED PARTY TRANSACTIONS
5. RECLASSIFICATIONS
Certain prior year balances have been reclassified to
conform to the current year presentation.
Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY-OWNED HOTEL STATISTICS BY REGION FOR THE
QUARTER ENDED MARCH 31, 1998
AWR Occupancy REVPAR
--------------------------
Mid Atlantic Region 159.90 80.7% 129.36
Midwest Region 152.84 63.2% 97.04
Southeast Region 165.87 86.7% 143.01
West Region 179.88 53.4% 95.84
COMPARISON OF THE QUARTER ENDED MARCH 31, 1998 TO THE QUARTER
ENDED MARCH 31, 1997
Total revenue for the quarter ended March 31, 1998 was
approximately $9,045,000, which was an increase of $5,123,000, or
131%, over the quarter ended March 31, 1997. Room revenue for
the quarter increased by approximately $4,784,000, of which
approximately $3,689,000 was attributable to the opening and full
quarter to date results of the 21 hotels which were not open a
full year as of March 31, 1998. In addition, approximately
$1,095,000 in revenue was attributable to hotels open more than
one year as of March 31, 1998 (hotels open more than a year as of
a particular date are identified as "mature hotels").
Approximately $690,000 of this increase relates to the
acquisition of four existing hotels by the Company on February
28, 1997. The increase in mature hotel room revenue reflects the
addition of 2 hotels, an increase in the average weekly rate
("AWR") from $151.41 to $159.27, and a decrease in occupancy of
(3.8)%. Occupancy for all Company hotels decreased from 84.5% to
76.3%; however, the AWR for all Company hotels increased from
$157.19 to $161.07. In addition, other hotel revenues increased
approximately $191,000 for the quarter ended March 31, 1998,
compared to the quarter ended March 31, 1997.
Franchise and other revenue from corporate operations for
the quarter ended March 31, 1998, which includes management,
franchise and development revenue, was approximately $383,000,
compared to $235,000 for the quarter ended March 31, 1997.
Management fees increased $31,000 as a result of fees earned on
six agreements to manage hotels for franchisees. Franchise
revenue for the quarter increased approximately $40,000, from
$160,000 in 1997 to $200,000 in 1998. The franchise revenue for
the quarter ended March 31, 1998 reflects $79,000 in initial
franchise fees, representing three hotel openings compared to
$79,000 and three hotel openings in the quarter ended March 31,
1997, and an increase of $40,000 in royalties and other charges
on open hotels. Development and construction revenue increased
approximately $73,000 as a result of fees earned on five
agreements to develop hotels for franchisees.
Hotel operating expenses increased approximately $2,701,000, or
145%, to approximately $4,569,000 for the quarter ended March 31,
1998, from approximately $1,868,000 for the quarter ended March 31,
1997. The majority of this increase, or approximately $2,276,000,
Page 7
pertains to the opening and quarter to date expenses for the 21
hotels which were not open a full year as of March 31, 1998. In
addition, approximately $425,000 is attributable to hotels open
more than one year, of which $322,000 of the increase pertains to
the four hotels acquired in February 1997. Hotel operating
margins at all Company hotels decreased from 49.3% to 47.3% from
March 31, 1997 to March 31, 1998, reflecting the fixed overhead
related to property operations during the ramp-up period
including 21 properties open less than twelve full months.
Corporate operating expenses increased $357,000, or
approximately 89%, to $758,000, due to the additional staffing
in the financial, management, training and marketing segments of
the business, as well as office rent, travel expenses, insurance,
legal and professional fees. Depreciation increased to $1,083,000
from approximately $449,000 as a result of the hotels opened or
acquired since March 31, 1997. Interest expense increased to
$62,000 for the quarter ended March 31, 1998. This increase
reflects loan amortization costs associated with the Company's
line of credit (the "Line of Credit") with PNC Bank, Kentucky,
Inc. ("PNC").
Excess funds were invested to generate interest income for
the quarter ended March 31, 1998 of approximately $835,000
compared to $770,000 for the quarter ended March 31, 1997. The
increase in interest income of approximately $65,000 was due to
higher invested cash balances partially resulting from borrowings
under the Line of Credit. Income tax expense increased by
$454,000 compared to the comparable period in 1997. The
effective tax rate of 34% for the quarter ended March 31, 1998 is
the result of tax-free interest income of approximately $207,000
and other tax related factors.
LIQUIDITY AND CAPITAL RESOURCES
On October 14, 1997, the Company received approximately
$79.9 million in net proceeds in connection with the public
offering of 3,300,000 shares of the Company's common stock (the
"October Offering"). On February 28, 1997, the Company acquired
four Suburban Lodge hotels from certain of its franchisees and
their affiliates and utilized approximately $12.5 million in cash
to pay off the existing debt related to such hotels. As of March
31, 1998 the Company had approximately $41 million in cash and
cash equivalents and had borrowed $25 million under the Line of
Credit and $10 under a separate note payable to the bank. These
funds are targeted for future acquisitions and construction and
development of additional hotels.
The Company anticipates that the total cost to complete
construction of the 24 Company-owned hotels expected to open by
the end of 1998 will be approximately $67 million. The Company
intends to fund the development and construction of these hotels
with existing cash balances, and cash flow from operations.
While the Company anticipates that there may be some markets
where, due to a number of factors (such as the increased cost of
using union subcontractors), its development costs will be
higher, overall the Company anticipates that in the immediate
future a typical 136-guest room Suburban Lodge hotel will cost
approximately $4 million (approximately $28,000 to $30,000 per
guest room).
Page 8
The Company has obtained a commitment from PNC to increase
the Line of Credit to $75 million and a preliminary agreement
from its lenders to increase the Line of Credit to $150 million,
which is subject to obtaining other participating lenders and the
satisfaction of other conditions. The Line of Credit matures
December 14, 2000 and bears interest, at the Company's option, at
(i) the higher of PNC's prime rate or federal funds rate plus one
half percent or (ii) the Euro-Rate plus 150-225 basis points,
based upon a variable leverage ratio. The Line of Credit is
secured by a collateral pool of properties. Restricted cash
represents an additional collateral on the line of credit which
will be released upon inclusion of certain real property assets
in the collateral pool. The Company receives income on such
deposit. The Line of Credit restricts, among other items, the
incurrence of indebtedness, the sale of assets, the incurrence of
liens, the concentration of hotel locations, and the payment of
any cash dividends. In addition, the Company is required to
satisfy, among other items, certain financial performance
criteria, including minimum net worth levels and minimum levels
of earnings before interest, taxes, depreciation and
amortization. As of March 31, 1998 the Company had $30 million
available under the Line of Credit, pending the inclusion of 12
additional properties in the collateral pool.
In the future, the Company may seek to increase the amount
of its credit facilities, negotiate additional credit facilities
or issue corporate debt or equity securities. Any debt incurred
or issued by the Company may be secured or unsecured, fixed or
variable rate interest and may be subject to such terms, as the
Board of Directors of the Company deems prudent.
The Company believes that existing cash balances, cash
generated from operations and borrowings under the Line of Credit
will be sufficient to meet the Company's working capital and
capital expenditure needs through the end of 1999. However,
additional capital will be necessary for the Company to execute
its long-term development plans.
Page 9
PART II. OTHER INFORMATION AND SIGNATURES
Item 5. Other Information
On October 14, 1997, the Company received approximately
$79.9 million in net proceeds in connection with the public
offering of 3,300,000 shares of the Company's common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Suburban Lodges of America, Inc.
Date: April 29, 1998 By: /s/ DAVID E. KRISCHER
David E. Krischer
Chairman of the Board,
President
Chief Executive Officer
Date: April 29, 1998 By: /s/ TERRY J. FELDMAN
Terry J. Feldman
Vice President
Chief Financial Officer
(Principal Financial Officer)